PCG - Pengana Capital Group

[Ves]

His actions on leaving seem reasonable to me.

It's all speculation and I assume no details of Peter's personal dealings with WSP will ever publically be released, but there's plenty of explanations you could conjure up that are along the lines of him looking after himself and completely shafting current shareholders (fortunately I'm not one of them).

I'm pretty sure the break-up value of HHL itself would be more than $1 per share.

Key personnel with concentrated interests in publically listed companies - there's a big grey area in what they should be doing in terms of the interests of all shareholders and what is best for their personal wealth IMO.

 

[Klogg]

I'm pretty sure the break-up value of HHL itself would be more than $1 per share.

Based on that alone, I can't conjure up a scenario where's he has screwed other shareholders.
If he was looking after himself, he'd be better off breaking up the company.

And if you go further and look at his previous actions (he's very charitable), hurting the shareholders just doesn't make sense.

The question for me is now - what will the takeover offer be? And is there a risk arbitrage opportunity here?

 

[Ves]

Based on that alone, I can't conjure up a scenario where's he has screwed other shareholders.

To a complete outsider it looks to me like he's sold 19.99% of the company at a massive discount to another company which has pretty much zero track record in the funds management business.

He has declared with his actions (ie. selling at below or near NTA) that the team at Hunter Hall have absolutely zero value without him. Gee, if ever there was a kick in the face, there it is right there. I cannot see how this would have a positive impact on company morale going forward no matter who steps up and buys it.

 

[Klogg]

To a complete outsider it looks to me like he's sold 19.99% of the company at a massive discount to another company which has pretty much zero track record in the funds management business.

He has declared with his actions (ie. selling at below or near NTA) that the team at Hunter Hall have absolutely zero value without him. Gee, if ever there was a kick in the face, there it is right there. I cannot see how this would have a positive impact on company morale going forward no matter who steps up and buys it.

From what I've read, there was another bid for the shares at a higher price, but price was not the primary motivator in his decision to sell.
As for the buyer - I don't know SOL very well, but from what I know of them they basically buy various assets and act very much like a long-term investor (although you're right, no specific funds management experience). They own TPM, API, RHL, BKI, NHC and many others.

There could be other reasons for his selling and the idea of finding a good home for the company just a front.

 

[So_Cynical]

My take on it is that he just snapped and wanted out and with that determination and more than enough personal FU money, he extracted himself from the business the fastest least damaging way he could, rolling the dice a little that someone else would come along and trump the SOL deal.

And if someone doesn't come along with a better offer, SOL get a bargain and he pockets another 5 million to add to the FU pile, SOL after all are great long term investors in other businesses, they will manage at arms length like they do with their other interests and they have a mountain of cash.

I know im not selling for a dollar and i doubt others will, still trading at around $2.50 anyway.

 

[craft]

To a complete outsider it looks to me like he's sold 19.99% of the company at a massive discount to another company which has pretty much zero track record in the funds management business.

He has declared with his actions (ie. selling at below or near NTA) that the team at Hunter Hall have absolutely zero value without him. Gee, if ever there was a kick in the face, there it is right there. I cannot see how this would have a positive impact on company morale going forward no matter who steps up and buys it.

Hi Ves

Hope you are well.

Doesn’t happen that often, but I disagree with you on this one.

SOH have been running BKI ($1Billion LIC) for ages plus they are a conglomerate of long term investments.

Recently they externalized the BKI management relationship creating Contact Asset Management owned by Tom Millner, Will Culbert & SOH.


I suspect HHL will sit somewhere within a structure that has Contact overseeing investment management. HHL can continue exactly as it is with SOL replacing Peter Hall as effective owner of the business, perhaps at some stage SOH may make a realistic bid for the rest of the company and integrate HHL employees and funds fully into Contact – but it’s not necessary for the survival of HHL and SOL tend to be happy owning controlling stakes in listed businesses.

Peter Hall leaving does impact other but he has the right to do so. Selling at $1.00 only improves the position of others as it avoids the possibility of HHL being liquidated. If there was a run on funds because PH left and HHV traded at a material discount to NTA, liquidation would almost be a certainty without a major shareholder stepping into Peter’s shoes, and the $1.00 sale brought that shareholder into existence. It remains to be seen whether SOL gets the remaining 24% @ $1.00 – A part of the pricing on the initial 19.9% would be to give SOL the scope to bid up on the remaining 24% if they need to. They couldn’t privately buy the whole stake without going through a takeover bid.

I doubt that SOL will make a bid high enough to attract Minority shareholders. HHL have previously tried to sell the business as a whole but the tenure of Peter Hall has been a stumbling block, perhaps but not highly probable we get a bid for the whole company during the process of pricing PH reaming 24%. But if not Peter Hall is really just making a private transaction to see HHL remain as a going concern – Not sure if I worked at HHL I would see PH actions ensuring ongoing viability of the business as a kick in the face – probably the opposite.

If James McDonald and Jonathan Rabinovitz remain and SOH take effective stewardship of the business I’ll remain as a happy minority holder. The initial investment case was a small bet on PH – this development has the potential to be a much better funds management business.

I have a lot of respect for Peter Hall; I think he probably thinks very much as I do. But a good investor does not necessarily make a good fund manager and he’s probably struggled for a while.

Two snippets from a recent article explain fully to me why he’s gone.

As a private investor, he can deploy his money without the risk constraints that institutional fund managers impose to avoid concentrated bets than can blow up clients' funds. "I will live by the sword, die by the sword".

"It's nice to have money but what is the marginal utility of the next bit of money when you've already got a certain minimum level of security and comfort?"

 

[Ves]

Howdy craft

Thanks for the really detailed response, much appreciated.

I think your line of thinking is very reasonable. As you said this is a fairly unique situation and I feel lucky that I'm not involved at this point because it's tricky (although could lead to a good opportunity).

I don't have a position in this one so I'm really just playing devil's advocate I hope you don't mind.

SOH have been running BKI ($1Billion LIC) for ages plus they are a conglomerate of long term investments.

Recently they externalized the BKI management relationship creating Contact Asset Management owned by Tom Millner, Will Culbert & SOH.

This is of course true. But BKI is an Australian only LIC. HHL's business has a decent portfolio of international based equities.

Perhaps this doesn't matter as much as I am assuming or there are people at BKI who have experience in this area and this is not immediately evident, but it feels like they're going outside of their circle of competence a little.

I suspect HHL will sit somewhere within a structure that has Contact overseeing investment management. HHL can continue exactly as it is with SOL replacing Peter Hall as effective owner of the business, perhaps at some stage SOH may make a realistic bid for the rest of the company and integrate HHL employees and funds fully into Contact – but it’s not necessary for the survival of HHL and SOL tend to be happy owning controlling stakes in listed businesses.

Peter Hall leaving does impact other but he has the right to do so. Selling at $1.00 only improves the position of others as it avoids the possibility of HHL being liquidated. If there was a run on funds because PH left and HHV traded at a material discount to NTA, liquidation would almost be a certainty without a major shareholder stepping into Peter’s shoes, and the $1.00 sale brought that shareholder into existence. It remains to be seen whether SOL gets the remaining 24% @ $1.00 – A part of the pricing on the initial 19.9% would be to give SOL the scope to bid up on the remaining 24% if they need to. They couldn’t privately buy the whole stake without going through a takeover bid.

I doubt that SOL will make a bid high enough to attract Minority shareholders. HHL have previously tried to sell the business as a whole but the tenure of Peter Hall has been a stumbling block, perhaps but not highly probable we get a bid for the whole company during the process of pricing PH reaming 24%. But if not Peter Hall is really just making a private transaction to see HHL remain as a going concern – Not sure if I worked at HHL I would see PH actions ensuring ongoing viability of the business as a kick in the face – probably the opposite.

If James McDonald and Jonathan Rabinovitz remain and SOH take effective stewardship of the business I’ll remain as a happy minority holder. The initial investment case was a small bet on PH – this development has the potential to be a much better funds management business.

I guess where I am coming from with the 'kick in the face' comment is from my experience business transitions, no matter how well you do them, rarely go smoothly. With HHL there is also the added context of the time from the beginning of the GFC until now which doesn't look at all like it was smooth sailing. I wouldn't suspect that it would take much for people in the organisation to get offended by Peter's actions (and they don't necessarily have to be interpreting them correctly in order to be offended or upset). That's just the nature of organisations that have been unstable. In that respect, I say this obviously as an outsider who knows very little.

Re the sale price at $1.00 and your comments re HHL operating with SOL just maintaining a controlling stake. I agree this would be the best outcome and it allows shareholders to continue to have exposure to the future economic outcomes of the business. Hopefully within a stable organisational environment.

I can honestly see upside in that if they can enact the right culture and allow the right people inside HHL to flourish. There's a lot of talented people in Australia in that respect if you give them the right environment.

My big issue isn't this, but it's the fact that by gifting WSP almost 20% at such a low price, they're in a position where they can leverage this stake and potentially takeover the whole company at a price which I am sure some minority shareholders would see as under their NPV. If the company is taken off the market in this fashion it also robs minority shareholders the chance to be exposed to the business in any shape or form.

I'm not sure if this was even possible, but if he wanted to sell at $1, isn't the best result finding a pro-rata way of offering this to all shareholders?

I guess at the end of the day it just feels like the elites/wealthy get opportunities that the small players can only dream of.

I have a lot of respect for Peter Hall; I think he probably thinks very much as I do. But a good investor does not necessarily make a good fund manager and he’s probably struggled for a while.

Two snippets from a recent article explain fully to me why he’s gone.

Yes, it certainly looks like he is disgruntled. He probably wasn't suited to running such a venture within a publically listed structure as this inherently takes away some of his advantageous personality traits.

Maybe he should have known in the first place, but there's been a hell of a lot of water under the bridge since then. Unfortunately for all involved we are now at the end game, and it had to come eventually.

 

[McLovin]

My take on it is that he just snapped and wanted out and with that determination and more than enough personal FU money, he extracted himself from the business the fastest least damaging way he could, rolling the dice a little that someone else would come along and trump the SOL deal.

And if someone doesn't come along with a better offer, SOL get a bargain and he pockets another 5 million to add to the FU pile, SOL after all are great long term investors in other businesses, they will manage at arms length like they do with their other interests and they have a mountain of cash.

I know im not selling for a dollar and i doubt others will, still trading at around $2.50 anyway.

This is what I think has happened. I would have real doubt that a boutique fm could survive without a cornerstone investor. By selling to SOL, PH has at least ensured the near term continuity of the HHL business.

 

[skc]

A piece from the AFR that I found quite amusing.

One fund manager who read the bidder's statement published by WHSP said it reminded him of the unsolicited takeover offers launched many years ago by David Tweed.
...
WHSP says that the reason someone may wish to accept the Hunter Hall offer is because it is a simple cash offer, it provides access to liquidity, it involves certain payment for the shares, it will remove the risks and uncertainties of continued investment in Hunter Hall, it is the only takeover offer available, not accepting the offer may leave shareholders exposed to a number of risks and shareholders will not pay brokerage by accepting the offer.

Read more: http://www.afr.com/brand/chanticlee...r-moves-forward-20170112-gtpzww#ixzz4VWUOB74T
Follow us: @FinancialReview on Twitter | financialreview on Facebook

These reasons are unbelievably $hithouse... if I make an offer of 10c for each TLS share, I can quote the same reasons as well to make it a compelling offer?

Can't the directors just say f-off? Why does a company need to spend all these money responding to non-sense takeovers with target statements and what not?

 

[McLovin]

A piece from the AFR that I found quite amusing.



These reasons are unbelievably $hithouse... if I make an offer of 10c for each TLS share, I can quote the same reasons as well to make it a compelling offer?

Can't the directors just say f-off? Why does a company need to spend all these money responding to non-sense takeovers with target statements and what not?

Aren't SOL just going through the process? They had to make a takeover offer to get the rest of Hall's shares and I guess they had to come up with something to put in the "why is this good" box.

The corps law has a whole section devoted to takeovers. I'm sure within lies the answer to why the directors can't say f off.

 

[craft]

Aren't SOL just going through the process? They had to make a takeover offer to get the rest of Hall's shares and I guess they had to come up with something to put in the "why is this good" box.

The corps law has a whole section devoted to takeovers. I'm sure within lies the answer to why the directors can't say f off.

That's my understanding also. Seems like they are doing it efficiently enough - hopefully they are also keeping the expenses as low as possible. If another bidder doesn't emerge this is effectively just large a private transaction taking place following due process for a public company.

 

[McLovin]

That's my understanding also. Seems like they are doing it efficiently enough - hopefully they are also keeping the expenses as low as possible. If another bidder doesn't emerge this is effectively just large a private transaction taking place following due process for a public company.

Yer. I'm a little perplexed with why Tony Boyd is so p!ssed about this (he seems to be having a daily rant in Chanticleer about it). I can't really see how shareholders are being jibbed, unless they participate in the takeover. I think a cornerstone investor is critical to this business or becomes rudderless.

It's a private transaction between two parties. Because of the way the law is it necessitates a ridiculous takeover process. I doubt anything like this was ever considered when the law was being drafted.

 

[So_Cynical]

I bought a few the other day, just a small trade with the IB account, @ 2.38

Now what sort of contrarian would i be if i didn't buy that?

 

[Value Hunter]

If you look at the Hunter Hall high conviction trust (HCT) the returns have been phenomenal (albeit with a limited track record). That is what Peter Hall was capable of when left to invest in a flexible and concentrated manner. I think the problem with Hunter Hall (I suspect anyway) was that the board tied Peter Hall's hands and forced most of the funds to become more diversified over time, which led to a decline in the performance numbers which then led to redemptions, loss of employee talent, etc.

 

[Value Hunter]

"renovations for the two funds were similar in that fund managers were appointed to oversee the portfolio construction of both funds, tighter risk limits were imposed in order to reduce the volatility of performance, and the stock selection process for both funds was improved in order to take greater account of both the risk and the upside of stocks in the portfolio. Furthermore, the benchmark for the AVT was changed from the All Ordinaries Accumulation Index to the Small Ordinaries Accumulation Index.

HUNTER HALL INTERNATIONAL LIMITED ANNUAL REPORT 30 June 2013

To me I interpret that to mean "we have changed the way some of our funds run. To stop scared investors from withdrawing money from our funds we will now diversify ourselves into mediocrity for the sake of reducing volatility. Even though this will hurt our performance in the long run in the short run it will help stem fund outflows. Also we will no longer invest as much in high risk, high reward stocks for the same reasons and also because we need to micromanage our analysts because we don't fully trust them due to poor performance over the last few years".

This was a post I made in 2014. I believe what was written in the 2013 annual report coupled with subtle comments by Peter Hall in recent interviews perhaps indicate he was pressured (perhaps by the board and or other shareholders or even fund consultants) over time to have more diversified portfolios. I believe this (coupled with their high fee structure and increasing competition) ultimately led to a decline in performance followed by a decline in funds under management and loss of key employee talent. I think if anything most of the funds will become even more diversified and conventional after Peter leaves leading to even worse performance. I therefore think contrasrians should be careful with this one.

 

[Smurf1976]

I can't really see how shareholders are being jibbed, unless they participate in the takeover.

The only reason I can see why anyone would participate is if they have no idea as to the actual value of their shares and simply assume that the takeover offer represents a good price.

I personally see that as a scam. Sending someone an offer to buy their shares at roughly a 60% discount to market value. Only those with a lack of knowledge are going to fall for it but personally I despise anything which seeks to take such blatant advantage of others.

Whilst most with shares will have some knowledge, there's always the chance that someone inherited some shares, has no idea about what to do next, sees the takeover offer and thinks that must be a reasonable deal so accepts it. Things like that.

 

[McLovin]

The only reason I can see why anyone would participate is if they have no idea as to the actual value of their shares and simply assume that the takeover offer represents a good price.

I personally see that as a scam. Sending someone an offer to buy their shares at roughly a 60% discount to market value. Only those with a lack of knowledge are going to fall for it but personally I despise anything which seeks to take such blatant advantage of others.

Whilst most with shares will have some knowledge, there's always the chance that someone inherited some shares, has no idea about what to do next, sees the takeover offer and thinks that must be a reasonable deal so accepts it. Things like that.

It's the formal takeover process. It's the Corps Act that forces them to go through this process. Don't forget the board of HHL also sends out letters saying "do not accept". It's not the same as those scammers who send out low ball offers to pensioners.

 

[craft]

Shareholders vote in favour of merger with Pengana Capital.

Pretty good conclusion to the Peter Hall departure episode in my view. I think its now a better funds management business -certainly bigger and more diverse.

Pillemer (CEO) and SOL have some serious skin in the new entity.

Maybe finally some positive funds flow leverage will come into play. Still a somewhat risky play on the viability/profitability of active investment management.

 

[craft]

Marking the end of an era. The entire history of HHL since floating.

Chart

Cash Flow

 

[System]

On June 6th, 2017, Hunter Hall International Limited (HHL) changed its name and ASX code to Pengana Capital Group Limited (PCG).